Why is it not necessarily bad for the operating cash flow to be a negative for a particular period?

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12-09-2022
Social Studies

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Why is it not necessarily bad for the operating cash flow to be a negative for a particular period?

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qwcat qwcat · Answer 1 · 2022-09-17T14:34:31+02:00

It is not necessarily although for reputated and established company to have a negative cash flow but it’s common for new starts up.

Negative cash flow for a particular period is not a too bad sign for a company, because business there’s up and downs, you have to bear losses and gains, but when it comes to a new company or startup the negative cash flow from the operations is common, because they have not proper well designed strategies and amount of funds as compared to a established company.

Investors who aren’t familiar with how to read a cash flow statement may find it difficult to understand negative cash flow from investment activities. In some circumstances, negative cash flow investments may be a red flag indicating management is ineffective at maximising the value of the company’s assets to produce profits. It can also be an indication that management is setting up the business for future expansion.

To learn more about Cash flow, refer this link.

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